European markets got off to a subdued start but losses were reversed after reports that US/China trade talks would resume next week in Washington. All key European markets are up sharply

The FTSE 100 is up 0.8% or 58 points at 7,254

ONS figures showed UK retail sales rose 1% in January, easily beating expectations as shoppers flocked to the sales. The data helped to push the pound - which had been at a four-month low - back above $1.28

Wall Street opened higher as traders felt optimistic about trade talks and shrugged off a surprise fall in industrial production

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Analysts at Bank of America Merrill Lynch say the timing and outcome of the US trade negotiations with China and the EU are the key focus for markets for the rest of the year.

They write in a note:

Since trade tensions started, we have been optimistic, arguing that no country should want a trade war, but we are now concerned that persistent trade tensions are keeping global growth weak. In this context, a recovery outside the US needs trade deals that will put trade tensions behind, relatively soon.

The risk is that another truce between the US and China, while the US and the EU start discussions on trade in autos and agriculture, will keep uncertainty high, delaying the recovery of the global economy. Our baseline still assumes trade deals, but it makes a difference if deals take place in 1Q, or later in the year.

And of course, the details of any trade deals will also be important to determine whether we are back in a free trade regime, or a permanent shift toward trade protection has taken place.

A significant shift in sentiment occurred on Friday morning following the latest trade talks update.

After a few days of discussion in Beijing, President Xi Jinping has said that the talks will continue in Washington next week, both sides still chasing that elusive deal before the ceasefire ceases at the start of March.

This faint whiff of progress was enough to cause the markets to reverse the losses that had come after the double-hit of Donald Trump’s ‘national emergency’ chat and China’s inflation-slowdown.

With the market cheering the apparent US-China progress, it is going to be interesting to see how much the trade war fears have weighed on the latest round of American data, including the industrial production and consumer sentiment figures.

High street discounts boost struggling retailers as Brexit nears

Report: US/China trade talks to continue in Washington next week

Reuters brings this report following talks in Beijing this week between US and Chinese trade negotiators:

Chinese President Xi Jinping said on Friday trade talks with the United States will continue in Washington next week and that he hopes the two sides will be able to reach a mutually beneficial deal in the upcoming negotiations, state media reported.

Xi said during a meeting with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin that talks in Beijing this week made progress and that China is willing to solve economic and trade disputes with the United States via cooperation, according to a report by Xinhua.

Lighthizer and Mnuchin said during the meeting that they maintain hope although there is still much work to be done, and that they are willing to work with China to reach a deal that is in line with the interests of both countries, according to Xinhua.

UK consumers are still in “happy-go-lucky” mood according to Samuel Tombs at Pantheon Macroeconomics.

January’s jump in retail sales shows that most households have maintained a happy-go-lucky mentality, despite the fraught political situation. While consumers’ confidence is down, this reflects rather fuzzy expectations that Brexit might be costly eventually.

Right now, households’ real incomes are being supported by low inflation, a decade-high rate of nominal wage growth and solid employment gains. Low confidence will prompt consumers to hold back from buying cars, booking holidays and moving home, but the high street will be protected.